The Basics Of Using Hard Money Lenders For Real Estate Investing

These days hard money lenders are increasingly being used a lot more by many speculators in order to fund many real estate investment properties. It is partly because banking institutions just are not lending in the amounts they once did. Economic uncertainty is a big reason for the drop off in standard bank lending.

Asset based financing is exactly what hard money lenders perform. The mortgages are all secured with a hard asset, in other words. The asset involved in hard money financing is normally real estate. So whenever an investor needs a loan he’ll pay a visit to hard money lender and use the property he or she wishes to invest in as the actual collateral to backup the loan.

Generally, hard money lenders will fund loans for approximately 60 to 70 percent of the property’s total value. The borrower must come up with the rest of the money for a down payment on the loan. The lender thus has a bit more security from this equity. This way he or she will hopefully not lose a lot of money from the loan if there is a default on payments.

If a default occurs the collateral property is simply legally transferred to the lender. Then he or she can sell this property to recoup the money that was lent out for the loan. Foreclosure is the last thing hard money lenders wish to do. They are likely to lose money or possibly break even in this event.

It is definitely more profitable if a borrower continues making payments as agreed for the entire loan term. It is a hassle to have to deal with the loan foreclosure. But hard money lending is considered to be a rather high risk investment so defaults do happen regularly.

Residential as well as commercial property investing are both uses for hard money in the industry. Investors could get commercial hard money loans in order to develop land for office buildings or other commercial uses.

Residential uses for hard money would include such real estate property as apartment buildings or condos.

Other purposes for hard money include what are called bridge loans. Frequently investors require funding for a property very quickly and cannot get it from a bank. While waiting for regular bank financing hard money lenders can grant loans quickly in the meantime.

One week or even less is common for these lenders to be able to grant loans of this type. So while waiting for permanent and likely cheaper funding from a bank, the hard money loan makes available funds to bridge the gap.

Rehab loans are yet another use for hard money. If a property needs to be improved or repaired to increase its value a rehab loan can facilitate that. Generally the loan will be enough to purchase the property and also pay for whatever improvements must be done.

As this kind of lending is quite a bit riskier the interest rates for hard money do tend to be significantly higher. And sometimes more points are charged for loan origination as well.

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